The financial complaints watchdog is challenging an attempt by Barclays to overturn a pivotal ruling that led to an emerging scandal over potentially mis-sold motor finance.
The Financial Ombudsman Service is seeking to block Barclays’ application for a judicial review of a ruling it made in January. It had found that Barclays Partner Finance and Lloyds’s Black Horse business had each treated two different customers “unfairly” with discretionary commission arrangements.
The rulings prompted the Financial Conduct Authority to launch a market-wide inquiry into potentially unfair vehicle loan deals struck before January 2021, which was when the regulator banned discretionary commissions on such loans, and as far back as April 2007.
Several lenders have already set aside large sums to cover costs and potential compensation payouts. In February, Lloyds Banking Group set aside £450 million to account for the potential impact of the review.
The developments have led to speculation that lenders could face a scandal not dissimilar to the payment protection insurance debacle, when banks were exposed to a bill of £50 billion. Although analysts expect the hit from the car loans inquiry to be lower, customer compensation and associated costs have been estimated to run into billions across the industry.
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In January, Barclays and Lloyds were ordered by the ombudsman to refund two borrowers more than £1,000 each in excess interest payments they had made compared with what they would have paid if they had been charged a lower rate. In both cases the complainants said the commission had been hidden and that they had been unaware they had paid a higher rate of interest, which in turn was paid to the dealer as commission.
Barclays is challenging the ruling, which has led to a High Court dispute, according to reports in The Daily Telegraph. If the bank’s application for judicial review is successful, it could undermine the FCA’s inquiry.
A spokesman for Barclays, which stopped selling motor finance in 2019, said: “We do not agree with the Financial Ombudsman Service’s decision in this case and are therefore challenging it. This challenge relates to a single, specific case and separately we continue to support the Financial Conduct Authority’s review into historic motor financing arrangements. Due to the ongoing nature of this case, we cannot share anything further at this time.”
Owing to the uncertainty surrounding the authority’s review and final decision, Barclays has decided not to make any provision.
A Financial Ombudsman Service spokeswoman said: “When people take out a car loan, it’s imperative they are treated fairly and the financial implications are totally transparent. We have now heard from more than 30,000 people with concerns that they were charged too much for their finance. These types of discretionary motor finance commission arrangements were banned by the Financial Conduct Authority in 2021. We cannot comment further due to legal proceedings.”
